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Difference Between Horizontal Integration And Vertical Integration

Horizontal integration differs from vertical integration in regard to the following:

1. Nature. Under horizontal combination, units carrying on the some trade or activity join together. They operate at the same stage in the industry. But in case of vertical combination, units operate at different stages of manufacture of a product.

2. Purpose. Horizontal integration aims at eliminating competition and achieving economies in marketing. But vertical integration leads to xself-sufficiency in supply of materials and marketing of intermediate products.

3. Elimination of Competition. The horizontal combination eliminates competition among the units so combined. But it is not so in vertical integration as the combined units were not competing with each other.

4. Control Over Market. Horizontal combination may lead to control over the market or creation of a monopoly. But it is not so in case of vertical combination.

5. Sell-sufficiency. Horizontal combination does not lead to self-sufficiency of materials. But in vertical integration, the manufacturer of a product may integrate with the supplier of raw material. This will lead to self-sufficiency.

6. Inter-dependency. The combined units under horizontal combination are not inter-dependent as far as raw materials are concerned. All units operates as semi-autonomous units. This stoppage of work in one unit does not affect the working of others. But in case of vertical integration, there is a combination of successive stages of production. Stoppage of work at one stage will affect the functioning at all subsequent stages. For instance, bread can’t be prepared if flour is not available. Flour can’t be made available if wheat grains are not available.

7. Specialization. There is no specialization among the integrating units in case of horizontal combination as all produce the same final product. But in case of vertical integration, every unit specializes in a particular process or stage of production.

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